Note 1 - Description of Business and Summary of Significant Accounting Policies
Description of Business
Cool Technologies, Inc. and subsidiary, (“the Company" or "Cool Technologies" or “CoolTech”) was incorporated in the State of Nevada in July 2002. In April 2014, CoolTechformed Ultimate Power Truck, LLC ("Ultimate Power Truck" or "UPT"), of which the Company owns 95% and a shareholder of Cool Technologies owns 5%. Cool Technologies was formerly known as Bibb Corporation, as Z3 Enterprises, and as HPEV, Inc. On August 20, 2015, the Company changed its name to Cool Technologies, Inc.
CoolTech has developed and intends to commercialize heat dispersion technologies in various product platforms. The Company has also developed and are commercializing a mobile power generation system that enables work trucks retrofitted with the system to generate electric power. In preparation, CoolTech has applied for trademarks for one of its technologies and its acronym. Cool Technologies currently owns one trademark: TEHPC. The Company believes that its proprietary technologies, including the patent portfolio and trade secrets, can help increase the efficiency and positively affect manufacturing cost structure in several large industries beginning with motors/generators and fleet vehicles. The markets for products utilizing the technology include consumer, industrial and military markets, both in the U.S. and worldwide.
The Company’s technologies are divided into three distinct, but complementary categories: a) mobile power generation, b) heat dispersion technology and c) electric load assist. As of December 31, 2018, CoolTech has seven US patents, one granted Mexican patent, four pending applications (2 in Canada, 1 in Brazil, 1 in US) and one US filed provisional application pending in the area of composite heat structures, motors, and related structures, heat pipe architecture, applications (commonly referred to as "thermal" or "heat dispersion technology") and a parallel vehicle power platform. Cool Technologies also has Patent Cooperation Treaty ("PCT") applications filed for a heat pipe cooled brake system, a parallel power input gearing system (PPIG) and radial vent thermal technology.
The Company intends to commercialize its patents by licensing its thermal technologies and applications to electric motor, pump and vehicle component manufacturers; by licensing or selling a mobile electric power system powered by a proprietary gearing system to commercial vehicle and fleet owners; and by licensing a plug-in hybrid conversion system for heavy duty trucks, buses and tractor trailers to fleet owners and service centers.
Basis of Presentation, Use of Estimates and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Cool Technologies, Inc. and Ultimate Power Truck, LLC. Intercompany accounts and transactions have been eliminated. The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although these estimates are based on management’s knowledge of current events and actions the Company may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.
Noncontrolling interest represents the 5% third-party interest in UPT. There are no restrictions on the transfer of funds or net assets from UPT to Cool Technologies.
Going Concern and Management’s Plan
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. CoolTech has incurred net losses of $49,866,128 since inception and has not fully commenced operations, raising substantial doubt about its ability to continue as a going concern. Management believes that the Company’s ability to continue as a going concern is dependent on its ability to generate revenue, achieve profitable operations and repay obligations when they come due. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. As of the issuance date of these consolidated financial statements, management is negotiating additional non-dilutive funding arrangements to support completion of the initial phases of the Company’s business plan: to license its thermal technologies and applications, including submersible dry-pit applications and to license and sell mobile generation retrofit kits (the Ultimate Power Truck business) driven by CoolTech proprietary gearing system. There can be no assurance, however, that the Company will be successful in accomplishing these objectives.
Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase.
Inventory
Inventory consisting of mobile generation kit materials and parts is stated at the lower of cost (first in, first out method) or net realizable value.
Intangible assets
The Company’s intangible assets consist of patents on its technology, recorded at cost. Cost is based on third party expenditures for patent applications. CoolTech will begin amortizing the intangibles over their estimated remaining useful life when it begins revenue-producing activities. Cool Technologies will determine the useful lives of its intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors that will be considered when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, the long-term strategy for using the asset, any laws or other local regulations that could impact the useful life of the asset, and other economic factors, including competition and specific market conditions.
Equipment
Equipment consists of vehicles the Company uses for testing and demonstrating its technology to potential customers. Depreciation is recorded using the straight-line method over five years, the estimated useful life.
Impairment of long-lived assets
When facts and circumstances indicate that the carrying value of long-lived assets may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of revenues and the resulting gross profit and cash flows. These estimated future cash flows are consistent with those CoolTech uses in its internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, it recognizes an impairment loss. The impairment loss recognized, if any, is the amount by which the carrying amount of the asset (or asset group) exceeds the fair value. Cool Technologies may use a variety of methods to determine the fair value of these assets, including discounted cash flow models, which are consistent with the assumptions management believes hypothetical marketplace participants would use. The Company has not recorded any impairment expense on its long-lived assets as of December 31, 2018.
Debt - original issue discount
When the Company issues notes payable with a face value higher than the proceeds it receives, CoolTech records the difference as a debt discount and amortize it through interest expense over the life of the underlying note payable.
Derivative financial instruments
When the Company issues debt that contains a conversion feature, it first evaluates whether the conversion feature meets the requirements to be treated as a derivative: a) one or more underlying, typically the price of the Company's stock; b) one or more notional amounts or payment provisions or both, generally the number of shares upon conversion; c) no initial net investment, which typically excludes the amount borrowed; and d) net settlement provisions, which in the case of convertible debt generally means the stock received upon conversion can be readily sold for cash. There are certain scope exceptions from derivative treatment, but these typically exclude conversion features that provide for a variable number of shares.
When Cool Technologies issues warrants to purchase its common stock, the Company must evaluate whether they meet the requirements to be treated as a derivative. Generally, warrants would be treated as a derivative if the provisions of the warrant agreement create uncertainty as to a) the number of shares to be issued upon exercise; or b) whether shares may be issued upon exercise.
If the conversion feature within convertible debt or warrants meet the requirements to be treated as a derivative, CoolTech estimates the fair value of the derivative liability using the Black-Scholes Option Pricing Model upon the date of issuance. If the fair value of the derivative liability is higher than the face value of the convertible debt, the excess is immediately recognized as interest expense. Otherwise, the fair value of the derivative liability is recorded as a liability with an offsetting amount recorded as a debt discount, which offsets the carrying amount of the debt. The derivative liability is revalued at the end of each reporting period and any change in fair value is recorded as a change in fair value in the consolidated statements of operations. The debt discount is amortized through interest expense over the life of the debt. Derivative instrument liabilities and the host debt agreement are classified on the consolidated balance sheets as current or non-current based on whether settlement of the derivative instrument could be required within twelve months of the balance sheet date.
The accounting treatment of derivative financial instruments requires that the Company record the embedded conversion option and warrants at their fair values as of the inception date of the agreement and at fair value as of each subsequent balance sheet date. Any change in fair value is recorded as non-operating, non-cash income or expense for each reporting period at each balance sheet date. The Company reassesses the classification of its derivative instruments at each balance sheet date. If the classification changes as a result of events during the period, the contract is reclassified as of the date of the event that caused the reclassification. As a result of entering into warrant agreements, for which such instruments contained a variable conversion feature with no floor, the Company has adopted a sequencing policy in accordance with ASC 815-40-35-12 “Derivatives and Hedging” (provides comprehensive guidance on derivative and hedging transactions) whereby all future instruments may be classified as a derivative liability with the exception of instruments related to share-based compensation issued to employees or directors.
Research and development costs
Internal costs related to research and development efforts on existing or potential products are expensed as incurred. External costs incurred for intangible assets, such as attorney fees for patents, are capitalized.
Share-based payments
All of the Company’s share-based awards are classified as equity. CoolTech does not have any liability classified share-based awards. Each warrant or stock option is exercisable for one share of common stock.
Nonemployees
-
Cool Technologies may enter into agreements with nonemployees to make share-based payments in return for services. These payments may be made in the form of common stock or common stock warrants. The Company recognizes expense for fully-vested warrants at the time they are granted. For awards with service or performance conditions, CoolTech generally recognizes expense over the service period or when the performance condition is met; however, there may be circumstances in which it determines that the performance condition is probable before the actual performance condition is achieved. In such circumstances, the amount recognized as expense is the pro rata amount, depending on the estimated progress towards completion of the performance condition. Nonemployee share-based payments are measured at fair value, based on either the fair value of the equity instrument issued or on the fair value of the services received. Typically, it is not practical to value the services received, so the Company determines the fair value of common stock grants based on the price of the common stock on the measurement date (which is the earlier of the date at which a commitment for performance by the counterparty to earn the equity instruments is reached, if there are sufficient disincentives to ensure performance, or the date at which the counterparty's performance is complete), and the fair value of common stock warrants using the Black-Scholes option-pricing model ("Black-Scholes"). Cool Technologies uses historical data to estimate the expected price volatility, the expected stock option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option. For awards that are recognized when a performance condition is probable, the fair value is estimated at each reporting date. The cost ultimately recognized is the fair value of the equity award on the date the performance condition is achieved. Accordingly, the expense recognized may change between interim reporting dates and the date the performance condition is achieved.
Employees
- Cool Technologies issues two types of common stock options to employees: 1) fully-vested at the time of grant and 2) market price-based vesting. The Company recognizes expense for fully-vested stock options on the date of grant at the estimated fair value of the options using Black-Scholes. CoolTech recognizes expense for market price-based options at the estimated fair value of the options using the lattice-based option valuation model ("Lattice Model") over the estimated life of the options used in the Lattice Model. The Company uses historical data to estimate the expected price volatility, the expected stock option life and expected forfeiture rate. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of grant for the estimated life of the stock option.
Modification of share-based payment awards
- In the event Cool Technologies modifies the terms of a non-vested share-based payment award, it would incur additional expense for the excess of the fair value of the modified share-based payment award, measured at the date of modification, over the fair value of the original share-based payment award. The incremental expense would be recognized ratably over the remaining vesting period.
Sale of common stock with warrants
- When the Company sells common stock it may also issue common stock warrants. CoolTech treats the value of these warrants as equity issuance costs. Accordingly, the value of the common stock warrants is included as a component of additional paid-in capital upon recording the sale of common stock.
Cashless exercise
- Most of the common stock warrants and stock options may be exercised on a cashless basis. The number of shares of common stock received upon exercising on a cashless basis is based on a) the volume weighted-average price of the common stock for three trading days immediately preceding the exercise date; b) the exercise price of the warrant or option; and c) the number of common shares issuable under the instrument.
Income taxes
Cool Technologies recognizes deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of the Company’s assets and liabilities. The Company monitors its deferred tax assets and evaluate the need for a valuation allowance based on the estimate of the amount of such deferred tax assets that it believes do not meet the more-likely-than-not recognition criteria. CoolTech also evaluates whether it have any uncertain tax positions and would record a reserve if managementbelieves it is more-likely-than-not their position would not prevail with the applicable tax authorities. The Company’s assessment of tax positions as of December 31, 2018 and 2017, determined that there were no material uncertain tax positions.
UPT is a limited liability company ("LLC"), which is treated as a partnership for income tax purposes, where all tax obligations flow through to the owners of the LLC during the period in which income taxes were incurred.
Fair value of financial instruments
Cool Technologies financial instruments include cash and cash equivalents, accounts payable, accrued liabilities, and debt. The carrying value of these financial instruments is considered to be representative of their fair value due to the short maturity of these instruments. The carrying amount of the debt approximates fair value, because the interest rates on these instruments approximate the interest rate on debt with similar terms available to the Company. CoolTech’s derivative liabilities were adjusted to fair market value at the end of each reporting period, using Level 3 inputs.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
Reportable segments
Cool Technologies has identified its operating segments, its chief operating decision maker ("CODM"), and the discrete financial information reviewed by the CODM. After evaluating this information, the Company has determined that it has one reportable segment.
Recently Issued Accounting Pronouncements
Financial Accounting Standards Board, or FASB, Accounting Standards Update, or ASU 2016-02 "Leases (Topic 842)"-
In February 2016, the FASB issued ASU 2016-02, which will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 18, 2018, including interim periods within those fiscal years. Cool Technologies is currently evaluating the potential impact this standard will have on its consolidated financial statements and related disclosures.
FASB ASU 2015-17"Income Taxes (Topic 740)" -
In November 2015, the FASB issued ASU 2015-17, which simplifies the presentation of deferred tax assets and liabilities on the balance sheet. Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet. The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet. This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. The Company has adopted ASU 2015-17 as of January 1, 2017 and has reported deferred tax assets and liabilities as noncurrent. Adopting this standard did not have a material impact on the Company's consolidated financial statements or financial statement disclosures.
FASB ASU 2015-11 "Inventory (Topic 330): Simplifying the Measurement of Inventory," or ASU 2015-11
- In July 2015, the FASB issued ASU 2015-11, which requires an entity to measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments apply to inventory that is measured using first-in, first-out (FIFO) or average cost. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016, with the option to early adopt as of the beginning of an annual or interim period. The Company adopted ASU 2015-11 on January 1, 2017, the first day of the Company's first quarter for the fiscal year ending December 31, 2017. Adoption of this standard did not have a material impact on the Company's consolidated financial statements or financial statement disclosures.
FASB ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)," or ASU 2014-09
- In May 2014, the FASB issued ASU 2014-09, which supersedes the revenue recognition requirements of Accounting Standards Codification, or ASC, Topic 605 "Revenue Recognition." ASU 2014-09 requires revenue recognition to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The new revenue recognition model requires identifying the contract, identifying the performance obligations, determining the transaction price, allocating the transaction price to performance obligations and recognizing the revenue upon satisfaction of the performance obligations. ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and change in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU 2014-09 can be applied either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the update recognized at the date of the initial application along with additional disclosures. This ASU is effective for annual reporting periods beginning after December 15, 2017, with the option to adopt as early as December 15, 2016. The Company adopted the new revenue guidance effective January 1, 2018. As the Company has not previously generated any revenues, there was no material impact to the Company's consolidated financial statements or financial statement disclosures.
Note 2 - Equipment
Equipment consists of the following:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Test vehicles
|
|
$
|
141,969
|
|
|
$
|
124,687
|
|
Other
|
|
|
5,000
|
|
|
|
5,000
|
|
|
|
|
146,969
|
|
|
|
129,687
|
|
Less: accumulated depreciation
|
|
|
(82,523
|
)
|
|
|
(83,959
|
)
|
|
|
$
|
64,446
|
|
|
$
|
45,728
|
|
Depreciation expense for the years ended December 31, 2018 and 2017, was $27,376 and $25,936, respectively, and is included within general and administrative expenses in the consolidated statement of operations.
Note 3 - Customer deposits - Related party
These represent advance payments of $400,000 received on orders that have not yet been fulfilled, with companies controlled by the individual who is the 5% owner of UPT and is a shareholder of Cool Technologies.
Note 4 - Debt
Debt consists of the following:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Notes payable
|
|
$
|
1,800,000
|
|
|
$
|
--
|
|
Convertible notes payable
|
|
|
581,950
|
|
|
|
795,803
|
|
Test vehicle financing
|
|
|
56,231
|
|
|
|
42,444
|
|
Note payable - related party
|
|
|
12,897
|
|
|
|
7,490
|
|
Note payable - UPT minority owner
|
|
|
190,000
|
|
|
|
250,000
|
|
|
|
|
2,641,078
|
|
|
|
1,095,737
|
|
Debt discount
|
|
|
(513,245
|
)
|
|
|
(339,416
|
)
|
|
|
|
2,127,833
|
|
|
|
756,321
|
|
Less: current portion
|
|
|
2,091,014
|
|
|
|
659,312
|
|
Long-term portion
|
|
$
|
36,819
|
|
|
$
|
97,009
|
|
Notes Payable
On July 5, 2018, the Company entered into a Secured Promissory Note Agreement with an accredited investor. CoolTech received $100,000 in financing and promised to pay the principal amount on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, it issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.065. The warrants expire after five years. The note was repaid and retired on September 28, 2018.
From September 1 - 11, 2018, the Company entered into a Promissory Note Agreements with three accredited investors. CoolTech received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, it issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
From September 7 - 25, 2018, the Company entered into a Promissory Note Agreements with four accredited investors. CoolTech received $125,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, CoolTech issued cashless warrants to purchase 1,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On October 2 and 26, 2018, the Company entered into a Promissory Note Agreements with two accredited investors. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, Cool Technologies issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On December 19, 2018, the Company entered into a Promissory Note Agreement with an accredited investor. It received $50,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, Cool Technologies issued cashless warrants to purchase 400,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
Convertible notes payable
August 2016 Convertible Note-
In August 2016, the Company entered into a senior convertible note agreement. Itreceived $400,000, bearing interest at 3%, with principal and interest payable on August 24, 2018. In addition, the Company received the right to require the buyer to purchase from the company four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share. At the same time, the Company granted the buyer the right to require the Company to sell to the buyer four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share. In the event of default, the interest rate will be 18% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150% or (ii) convert any portion of this note then held by noteholder into shares of common stock at the conversion price of $0.025, equal to a number of shares of common stock equal to the principal amount outstanding on the note (divided by 0.025) and multiplied by the premium of 150%.
The note may be converted at any time into shares of the common stock at the conversion price pursuant to the terms of the note. The buyer may not, however, convert more than 50% of the note’s purchase price prior to September 30, 2016.
On April 18, 2017, KHIC, LLC, a 6% shareholder, was issued 1,132,000 shares of common stock after converting $28,300 in debt at $0.025 per share.
On May 30, 2017, the Company signed an amendment to the securities purchase agreement originally signed with KHIC on August 24, 2016. In exchange for $100,000, KHIC extended the KHIC’s right to require the Company to sell to the buyer, four million restricted shares of common stock at a purchase price of $0.05 per share and a warrant to purchase four million shares of common stock with an exercise price of $0.06 per share until June 7, 2017. The right was originally due to expire on May 31, 2017. On June 7, 2017, KHIC exercised the right and was issued the requisite shares and warrants.
On April 8, 2018, KHIC was issued 2,025,000 shares of common stock after converting $50,625 in debt at $0.025 per share.
An amendment was signed on August 24, 2018 which extended the maturity date of the note to December 15, 2018. In exchange, the outstanding balance of the note was increased to $455,544.
An amendment was signed on December 10, 2018 which extended the maturity date of the note to December 28, 2018. In exchange, the outstanding balance of the note was increased to $460,094 and a partial payment of $250,000 was made on the balance. On December 28, 2018, the outstanding balance of $210,094 was paid in full and the note was retired.
August Convertible Note
- On August 25, 2017, the Company entered into a convertible note agreement. It issued 300,000 inducement shares of restricted common stock and received $150,000, with an original issue discount of $15,000 in lieu of interest, for a total amount of $165,000 due on March 25, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at $0.10 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On February 19, 2018, the convertible note agreement was amended and the maturity date was extended until April 30, 2018. In exchange, the holder’s debt conversion share price was reduced to $0.025 per share.
Subsequent to the signing of the amendment, from March 23 to April 19, 2018, a total of $87,500 were converted into 3,500,000 shares of common stock.
On April 27, 2018, a second amendment was signed extending the maturity date until May 30, 2018. On May 23, 2018, the Company issued 3,298,000 shares on conversion of $82,450 and the note was retired.
January Convertible Note
- On January 26, 2018, the Company entered into a convertible note agreement. It issued 800,000 inducement shares of restricted common stock and received $200,000, with an original issue discount of $20,000 in lieu of interest, for a total amount of $220,000 due on August 26, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On May 22, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to October 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.
On September 25, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.
On October 1, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019.
September 2016 Promissory Notes -
On September 30, 2016, the Company issued Gemini Master Fund, Ltd., a 5% stockholder, a secured promissory note in the original principal amount of $180,000. The note accrues interest at 5% (18% in the event of an event of default) and matures on June 30, 2017. In connection with the issuance of the note, Gemini Master Fund was issued 800,000 shares of common stock on November 10, 2016.
On June 30, 2017, the promissory note holder signed an extension agreement that extended the maturity date of the promissory notes to September 30, 2017 and then again until November 30, 2017. The terms and conditions remained the same.
On November 13, 2017, Lucas Hoppel purchased the note for $226,325 which included accrued and unpaid interest as well as additional charges.
On November 20, 2017, Lucas Hoppel signed an amendment to the note which extended the maturity date to December 31, 2017. In addition, the note was changed from promissory to convertible with a conversion price of $0.05 per share. On December 29, 2017 the note was amended and the maturity date was extended to February 16, 2017. In exchange the conversion price was reduced to $0.04.
On February 19, 2018, the Company signed an amendment to a convertible note for $226,325 originally issued on September 3, 2017. The amendment extended the maturity dated extended to March 31, 2018. In exchange, the conversion price was reduced from $0.04 to $0.025.
From December 7 to December 31, 2017 a total of $62,500 were converted into 1,250,000 shares of common stock. From January 1 to February 20, 2018, a total of $122,500 were converted into 3,500,000 shares of common stock. On March 5, 2018, the buyer converted $41,325 into 1,653,000 shares of common stock and the $226,325 note was retired.
February Convertible Note
- On February 19, 2018, the Company entered into a convertible note agreement. It issued 2,000,000 inducement shares of restricted common stock and received $350,000, with an original issue discount of $35,000 in lieu of interest, for a total amount of $385,000 due on September 19, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On May 22, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to November 1, 2018. In exchange, the note was changed from promissory to convertible with a conversion price of $0.025 per share.
On September 14, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On October 26, 2018, Lucas Hoppel signed an amendment to the note which extended the maturity date to January 1, 2019. On October 31, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt.
April Convertible Note
-- On April 26, 2018, the Company entered into a convertible note agreement. It received $128,000 with an original issue discount of $12,800 in lieu of interest, for a total amount of $140,800 due on July 25, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
On October 16, 2018, CoolTech sent a notice of pre-payment to the holder. On October 18, 2018, the Company wired $189,940 to the holder and the note was retired.
May Convertible Note -
On May 22, 2018, the Company entered into a convertible note agreement. It issued 400,000 inducement shares of restricted common stock and received $110,000, with an original issue discount of $10,000 in lieu of interest, for a total amount of $100,000 due on December 22, 2018. At the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at $0.05 per share. In the event of default, the outstanding balance will increase by 25% and a daily penalty of $100 will accrue until the default is remedied.
On December 5, 2018, the Company issued 2,000,000 shares on conversion of $50,000 in debt. On December 6, 2018, CoolTech issued 2,532,000 shares on conversion of $63,300 in debt and the note was retired.
May Convertible Note
-- On May 31, 2018, the Company entered into a convertible note agreement. It received $53,000 with an original issue discount of $5,300 in lieu of interest, for a total amount of $58,300 due on May 31, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%. On November 13, 2018, CoolTech wired $78,564 to the holder and the note was retired.
August Convertible Note --
On August 17, 2018, the Company entered into a convertible note agreement. It received $63,000 with an original issue discount of $6,300.00 in lieu of interest, for a total amount of $58,300 due on August 17, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the average of the three lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
December Convertible Note --
On August 17, 2018, the Company entered into a convertible note agreement. It received $63,000 with an original issue discount of $6,300.00 in lieu of interest, for a total amount of $58,300 due on August 17, 2019. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest Volume Weighted Average Prices (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
Test Vehicle Financing
In October 2014, the Company entered into financing agreements for the purchase of test vehicles, bearing interest at 5.99% payable monthly over five years, collateralized by the vehicles. In July 2018, CoolTech traded-in one test vehicle and purchased another bearing interest rate of 9.92% payable monthly over 6 years.
Note payable - UPT minority owner
Held by the 5% minority owner of UPT. The terms of the note have not been finalized.
Warrants Issued with Debt
When the Company issues notes payable, it may also be required to issue warrants.
|
|
Number of Warrants
|
|
|
Weighted-average Exercise Price
|
|
|
Weighted-average Remaining Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2016
|
|
|
14,421,379
|
|
|
$
|
0.02
|
|
|
|
2.5
|
|
|
$
|
999,378
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Forfeited or expired
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding, December 31, 2017
|
|
|
14,421,379
|
|
|
|
0.02
|
|
|
|
1.5
|
|
|
|
725,950
|
|
Exercisable, December 31, 2017
|
|
|
14,421,379
|
|
|
|
0.02
|
|
|
|
1.5
|
|
|
|
725,950
|
|
Granted
|
|
|
14,400,000
|
|
|
|
0.05
|
|
|
|
--
|
|
|
|
--
|
|
Forfeited or expired
|
|
|
(750,000
|
)
|
|
|
0.16
|
|
|
|
--
|
|
|
|
--
|
|
Exercised
|
|
|
(13,603,662
|
)
|
|
|
0.02
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding, December 31, 2018
|
|
|
14,467,717
|
|
|
|
0.05
|
|
|
|
4.6
|
|
|
|
1,564
|
|
Exercisable, December 31, 2018
|
|
|
14,467,717
|
|
|
$
|
0.05
|
|
|
|
4.6
|
|
|
$
|
1,564
|
|
Future contractual maturities of debt are as follows:
Year ending December 31,
|
|
|
|
2019
|
|
|
2,091,014
|
|
2020
|
|
|
6,656
|
|
2021
|
|
|
7,358
|
|
2022
|
|
|
8,134
|
|
2023
|
|
|
8,992
|
|
2024
|
|
|
5,679
|
|
|
|
$
|
2,127,833
|
|
Transactions with Related Parties
The note payable - related party, in the amount of $12,897, is held by the Company's Chief Financial Officer and relates to unreimbursed expenses.
The note payable - UPT minority owner, in the amount of $190,000, is held by the 5% minority owner of UPT. The terms of the note have not been finalized.
Note 5 - Derivative Liability
Under the terms of the May 2016, December 2016, March 2017, April 2018, May 2018, August 2018 and December 2018 Convertible Notes, the Company identified derivative instruments arising from embedded conversion features, as well as warrants issued with the December 2015 Convertible Note.
The following summarizes the Black-Scholes assumptions used to estimate the fair value of the derivative liability at the dates of issuance and the revaluation dates:
|
|
Year ended
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Volatility
|
|
102%-119
|
%
|
|
108%-199
|
%
|
Risk-free interest rate
|
|
1.7%-2.7
|
%
|
|
0.5%-1.8
|
%
|
Expected life (years)
|
|
0.0 - 1.3
|
|
|
0.2 - 1.7
|
|
Dividend yield
|
|
|
--
|
|
|
|
--
|
|
On March 22, 2017, Cool Technologies amended its certificate of incorporation to increase the number of authorized shares of its common stock. Subsequent to this amendment, the Company had a sufficient number of authorized but unissued shares of common stock available to settle all of its outstanding common share equivalents. Accordingly, the common share equivalents that were previously reclassified to derivative liabilities were subject to a final mark-to-market for their change in fair value as of the date of the increase in authorized shares and were then reclassified back to equity.
Changes in the derivative liability were as follows:
|
|
Twelve Months Ended
December 31, 2018
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Convertible debt and other derivative liabilities at December 31, 2016
|
|
|
--
|
|
|
|
--
|
|
|
|
4,851,760
|
|
Conversions of convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
(316,245
|
)
|
Issuance of convertible debt and other derivatives
|
|
|
--
|
|
|
|
--
|
|
|
|
306,901
|
|
Reclassification of common share equivalents to additional paid-in capital
|
|
|
--
|
|
|
|
--
|
|
|
|
(6,364,224
|
)
|
Change in fair value
|
|
|
--
|
|
|
|
--
|
|
|
|
1,529,312
|
|
Convertible debt and other derivative liabilities at December 31, 2017
|
|
|
--
|
|
|
|
--
|
|
|
|
7,504
|
|
Conversions of convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Issuance of convertible debt and other derivatives
|
|
|
--
|
|
|
|
--
|
|
|
|
346,821
|
|
Reclassification of common share equivalents to additional paid-in capital
|
|
|
--
|
|
|
|
--
|
|
|
|
--
|
|
Extinguishment of convertible debt
|
|
|
--
|
|
|
|
--
|
|
|
|
(120,603
|
)
|
Change in fair value
|
|
|
--
|
|
|
|
--
|
|
|
|
(83,963
|
)
|
Convertible debt and other derivative liabilities at December 31, 2018
|
|
|
--
|
|
|
|
--
|
|
|
|
149,759
|
|
Note 6 - Commitments and Contingencies
On December 12, 2012, the Company concluded negotiations on a debt settlement agreement by and among the Company, Phoenix Productions and Entertainment Group ("PPEG"), Action Media Group, LLC ("Action Media") and Spirit Bear Limited ("Spirit Bear") (PPEG and Action Media collectively, the "Debt Holders"). PPEG and Action Media were significant shareholders in CoolTech’s predecessor company and Spirit Bear is a related party through voting rights. The debt holders were to return to escrow a total of 4,676,000 shares of common stock. 3,676,000 of these shares were returned and cancelled on January 14, 2013, following a filing a registration statement with the SEC on January 11, 2013. The remaining 1,000,000 shares will be purchased by the Company or a nominee of the Company at $0.40 per share (or $400,000) at the rate of $10,000 per month commencing within 90 days of the Company achieving $1,000,000 in gross revenues for products or services from business operations. PPEG and Action Media will divide the $400,000 on a pro rata basis, based on each company's respective amount of debt forgiven. The historical cost of the shares held in escrow are reflected in equity on the consolidated balance sheets as common stock held in escrow.
Effective May 1, 2015, the Company executed a First Amendment to Settlement Agreement (the "Amendment") with Spirit Bear and the parties identified as the assignees of Spirit Bear who are signatories to the Amendment, which amends certain provisions of the Settlement Agreement. In accordance with the terms of the Amendment, Jay Palmer, Carrie Dwyer and Donica Holt, the Spirit Bear holdover directors, tendered their resignation from the Board of Directors of the Company. Spirit Bear also agreed that it will no longer have any rights to appoint nominees to the Board of Directors. Pursuant to the Amendment, the Company agreed to file a registration statement on Form S-1 covering an aggregate of 14,845,072 shares of common stock, preferred stock and warrants on behalf of Spirit Bear and its assignees no later than July 15, 2015, which was filed with the SEC on July 15, 2015. A representative of Spirit Bear agreed that the obligation to register the shares on a Form S-1 need only include shares of common stock and shares of common stock issuable upon conversion of the Preferred Stock and exercise of the warrants held by Spirit Bear and its assignees. The Company agreed to issue replacement warrants for certain previously-issued warrants, which will be canceled in connection with the replacement issuance. Within 10 business days of June 1, 2015, the parties agreed to dismiss all of the pending litigation between and among them.
On November 4, 2016, Spirit Bear agreed to the withdrawal of the registration statement in exchange for confirmation that the warrants owned by Spirit Bear and its associate which were subject to a separate court action shall not expire even if the court action continued beyond the warrants’ initial expiration date. The registration had not been declared effective by the SEC and the Company filed a request to withdraw the Registration Statement on November 14, 2016.
On August 28, 2015, the parties filed a Stipulation to dismiss the direct claims of the Company against Spirit Bear and of Spirit Bear against the Company in the Nevada Lawsuit. By Order dated September 1, 2015 and filed September 2, 2015, the Court ordered dismissal of all direct claims in the Nevada Lawsuit.
Additionally, on February 20, 2015, the Court issued its preliminary approval to the derivative action settlement agreement (the "DASA") which would lead to the ultimate dismissal of the derivative suit also filed by Spirit Bear in the same action. The Court scheduled a fairness hearing for November 20, 2015 to consider giving its final approval to the DASA. No shareholder filed any objections to the DASA by April 30, 2015 which was the deadline established by the Court for filing objections. However, on October 22, 2015, Peak Finance, LLC filed a Motion to Intervene in the action seeking, among other things, approval to file a new derivative Complaint in this matter. The Company opposed this Motion.
On August 31, 2015, the Company received notice of a summons in the matter styled Peak Finance, Derivatively on Behalf of Nominal Defendant, HPEV, Inc. v. Hassett, et al., No. 2:15-cv-01590-GMN-CWH, filed in the United States District Court for the District of Nevada (the “Peak Finance Claim”). Plaintiff Peak Finance, LLC (“Peak Finance”) alleges that certain members of the Company’s Board of Directors and officers caused a misleading proxy statement to issue and breached alleged fiduciary duties from and after June 18, 2013. Peak Finance further alleges that its claim is related to the Spirit Bear Lawsuit described above. The Company has not determined that there is any merit to the allegations, and has decided to submit the claims to an Independent Director Committee consisting of Directors Christopher McKee, Richard J. “Dick” Schul, and Donald Bowman for their review and consideration. Additionally, on September 28, 2015, the Company filed a motion to dismiss the initial Complaint filed by Peak Finance. On October 22, 2015, rather than oppose the motion to dismiss, Peak Finance filed an amended complaint in this case in addition to the Motion to Intervene in the pending Spirit Bear litigation set forth above. On November 9, 2015, the Company filed a new motion to dismiss the first amended complaint filed by Peak Finance on October 22, 2015.
At the November 20, 2015 fairness hearing, the Court denied Peak Finance's Motion to Intervene. However, the Court did allow Peak Finance to formally argue its objections to the DASA. The Court ordered additional briefing on certain issues which has now been completed. The Court has ordered another hearing to consider the DASA on April 1, 2016.
On April 1, 2016, Peak Finance and the Company advised the Court that they had agreed in principle to a settlement that would include withdrawal of Peak Finance’s objection to the DASA. On April 20, 2016, the parties filed a Stipulation and Proposed Order for Withdrawal of Objection to DASA, which was granted by the Court on April 21, 2016. On May 3, 2016, the Court issued an Order, which fully and finally approved the DASA and dismissed the Peak Finance and the Spirit Bear cases, with prejudice. On May 17, 2016, the Company filed a document to show cause as to the effect of the Stipulation and Proposed Order Regarding Settlement on the pending Motion to Dismiss Amended Complaint.
Also on May 17, 2016, Peak Finance and the Company filed a Stipulation and Proposed Order to Modify Stay of Proceedings so that the stay issued on January 6, 2016 could be modified to permit the Court to consider the Stipulation and Proposed Order Regarding Settlement and for the Court and all parties to take all necessary actions to seek final approval of a settlement prior to the Court ruling on the pending Motion to Dismiss.
On October 11, 2016, the United States District Court, District of Nevada orally approved the derivative action settlement agreement (“Peak Settlement Agreement”) reached in Peak Finance, LLC v. Timothy J. Hassett et. al., Case No. 2:15-cv-01590-GMN-CWH. Noting that no non-party shareholder filed any objections to the Peak Settlement Agreement, the District Court specifically found that it is “fundamentally fair, reasonable and adequate” and serves the best interest of the Company. The Court further directed that counsel for the parties prepare a proposed formal written order finally approving the Peak Settlement Agreement and dismissing the case.
On October 20, 2016, the Derivative Action Settlement Agreement was formally approved and the case was formally dismissed with prejudice.
Subsequent to the dismissal, an Independent Directors Committee consisting of directors Christopher McKee, Richard J. "Dick" Schul and Donald Bowman reviewed the allegations made by Peak Finance, LLC to determine a proper corporate response. On December 6, 2016, a quorum of the members of the Independent Directors Committee met with Peak Finance, LLC in New York City, to fulfill the judges’ final orders. No further action is required by the Company in this matter.
On October 7, 2016, the Company received a complaint, Wang et al v. Cool Technologies, Inc. et al, filed on July 28, 2016 in the U.S. District Court for the Eastern District of New York (Brooklyn) Civil docket #1:16-CV-04101-RRM-PK against the Company and Timothy Hassett, the Company’s Chief Executive Officer, alleging damages of $1,100,000 for inter alia breach of contract for failing to register shares sold to the Plaintiffs in February and March 2014.
On March 30, 2017, the Company and Timothy Hassett, the Company’s Chief Executive Officer, requested leave of the court to move to dismiss the matter, on both Substantive and Jurisdictional grounds. On April 13, 2017, the Honorable Roslynn R. Mauskopf granted leave to renew the Company’s March 30, 2017 request for a pre-motion conference after the initial conference before Magistrate Judge Kuo. At the initial conference, Corporate counsel informed the court that the Company, in fact, filed a registration statement for said shares in July 2014 and the Warrants were in the possession of Plaintiff Gary Zse Kong J.D. and located on his computer and printed at his office in the Law Offices of Gary Park. Magistrate Judge Peggy Kuo directed plaintiff to file an amended complaint and directed plaintiff Gary Sze Kong to preserve all computer and other records which may still be at the Law Offices of Gary Park. Defendants were also granted leave to subpoena such records if they are no longer under the control of Plaintiff Kong. On June 30
th
, Plaintiff amended their complaint inter alia admitting that the Company filed the registration statement with the SEC. On August 7, 2017, Corporate Counsel requested leave for a pre-motion conference to move to dismiss the matter.
On March 27, 2018, a Subpoena has been issued and served upon the Law Offices of Gary S. Park P.C. On April 3, 2018 counsel for Plaintiffs withdrew and were replaced by Mr. Sang Joon Sim, Esq. of Sim & Record, LLP which shares an address with Mr. Park’s law offices.
From time to time, Cool Technologies may be a party to other legal proceedings. Management currently believes that the ultimate resolution of these matters, and after consideration of amounts accrued, will not have a material adverse effect on consolidated results of operations, financial position, or cash flow.
Note 7 - Equity
Preferred Stock
Cool Technologies has 15,000,000 preferred shares authorized and 20 Series A and 2,727,270 Series B preferred shares issued and outstanding as of December 31, 2018.
In addition to the preferred stock, the Securities Purchase Agreement included warrants to purchase (i) 3,636,360 shares of the Company’s common stock at an exercise price of $0.07 per share. The aggregate purchase price of the preferred stock and warrants was $200,000, of which $150,000 was paid in cash and $50,000 was paid in services.
In connection with the sale of the Preferred Stock, on October 20, 2016, the Company filed with the Secretary of the State of Nevada, an amended Certificate of Designations of the Rights, Preferences, Privileges and Restrictions, which have not been set forth in the Certificate of Designation of the Series B Convertible Preferred Stock nor the first Amendment to Certificate of Designation filed on August 12, 2016.
The preferred stock has the same rights as if each share of Series B Convertible Preferred Stock were converted into one share of common stock. For so long as the Series B Convertible Preferred Stock is issued and outstanding, the holders of such Series B Convertible Preferred Stock vote together as a single class with the holders of the common stock and the holders of any other class or series of shares entitled to vote with the common stock, with the holders of Series B Stock being entitled to 66 2/3% of the total votes on all such matters.
In the event of the death of a holder of the Class B Preferred Stock, or a liquidation, winding up or bankruptcy of a holder which is an entity, all voting rights of the Class B Preferred Stock shall cease.
The holder of any shares of Class B Preferred Stock have the right to convert their shares into common stock at any time, in a conversion ratio of one share of common stock for each share of Class B Preferred. If the Company’s common stock trades or is quoted at a price per share in excess of $2.25 for any twenty consecutive day trading period, the Class B Preferred Stock will automatically be convertible into the common stock of the Company in a conversion ratio of one share of common stock for each share of Class B Preferred.
The holders of Class B Preferred Stock are not entitled to receive any distributions in the event of any liquidation, dissolution or winding up of the Company.
The warrants cannot be exercised on a cashless basis.
On October 31 and November 1, 2016, three of the accredited investors provided $51,000 to Cool Technologies and are due to receive an additional 927,270 Series B Preferred shares.
On October 31 and November 1, 2016, three of the accredited investors provided $51,000 to the Company. Pursuant to signed approval from the investors, on July 25, 2017, CoolTech issued 309,090 shares of common stock to each of the investors.
On May 8, 2017, Inverom Corporation converted its 909,090 Series B preferred shares into 909,090 shares of common stock. This represented all of the shares of Series B stock held by Inverom Corporation.
Preferred stock issuable on the consolidated balance sheets represents preferred stock to be issued for either cash received or services performed. As of December 31, 2018 and 2017, the number of shares of preferred stock to be issued was 0.
Spirit Bear holds 17 shares of Cool Technologies’ Series A Preferred Stock and KHIC, Inc., a related party holds the remaining 3 shares of Series A Preferred Stock. Each share of Series A Preferred Stock ("Preferred Stock") is convertible into 50,000 shares of common stock. Each share of preferred stock has voting rights as if they were converted into 50,000 shares of common stock. The holders of each share of preferred stock then outstanding shall be entitled to be paid out of the Available Funds and Assets (as defined in the "Certificate of Designation"), and prior and in preference to any payment or distribution (or any setting a part of any payment or distribution) of any Available Funds and Assets on any shares of common stock, an amount per preferred share equal to the Preferred Stock Liquidation Price ($2,500 per share). On January 25, 2019, Spirit Bear converted all of their shares of Series A Preferred Stock into 850,000 shares of the Company’s common stock.
Common stock
On February 10, 2017, stockholders holding shares that entitled them to exercise at least a majority of the voting power, voted in favor of increasing the number of authorized shares of common stock, from 140,000,000 shares to 350,000,000 shares.
Common stock issuable on the consolidated balance sheets represents common stock to be issued for either cash received or services performed. As of December 31, 2018 and 2017, the number of shares of common stock to be issued was 1,144,697 and 9,320,635 shares, respectively.
Common stock warrants issued with the sale of CoolTech’s common stock
When the Company sells shares of its common stock the buyer also typically receives fully-vested common stock warrants with a maximum contractual term of 3-5 years. A summary of common stock warrants issued with the sale of common stock as of December 31, 2018, and changes during the years then ended is presented below:
|
|
Number of Warrants
|
|
|
Weighted-average Exercise Price
|
|
|
Weighted-average Remaining Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2016
|
|
|
34,045,467
|
|
|
$
|
0.30
|
|
|
|
|
|
|
|
Granted
|
|
|
25,941,558
|
|
|
|
0.08
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(12,549,437
|
)
|
|
|
0.26
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
47,437,588
|
|
|
|
0.19
|
|
|
|
2.1
|
|
|
$
|
114,000
|
|
Exercisable, December 31, 2017
|
|
|
47,437,588
|
|
|
|
0.19
|
|
|
|
2.1
|
|
|
$
|
114,000
|
|
Granted
|
|
|
5,431,944
|
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(501,645
|
)
|
|
|
0.29
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
52,367,887
|
|
|
|
0.18
|
|
|
|
1.3
|
|
|
|
-
|
|
Exercisable, December 31, 2018
|
|
|
52,367,887
|
|
|
$
|
0.18
|
|
|
|
1.3
|
|
|
$
|
-
|
|
Note 8 - Share-based payments
Amounts recognized as expense in the consolidated statements of operations related to share-based payments are as follows:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Nonemployee common stock
|
|
$
|
--
|
|
|
$
|
139,529
|
|
Nonemployee preferred stock (Series B)
|
|
|
--
|
|
|
|
--
|
|
Nonemployee warrants - fully vested upon issuance
|
|
|
25,882
|
|
|
|
398,398
|
|
Nonemployee warrants - service and performance conditions
|
|
|
--
|
|
|
|
6,118
|
|
Employee common stock
|
|
|
--
|
|
|
|
188,000
|
|
Employee stock options - market price-based
|
|
|
--
|
|
|
|
--
|
|
Total share-based expense charged against income
|
|
$
|
25,882
|
|
|
$
|
732,045
|
|
|
|
|
|
|
|
|
|
|
Impact on net loss per common share:
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
UPT management agreement
In July, 2014, Cool Technologies entered into a three year agreement with the Company managing the operations of UPT, whereby it would issue common stock under the following conditions:
Condition
|
|
Number of Shares
|
|
UPT recognizes $100 million of revenue or a change in control
|
|
|
500,000
|
|
UPT recognizes $100 million of revenue
|
|
|
150,000
|
|
|
|
|
650,000
|
|
On June 30, 2017 the agreement expired. None of the conditions were met prior to expiration, so no expense will be recognized and no common stock will be issued under this agreement.
In July 2014, Cool Technologies entered into a three year agreement with the Company managing the operations of UPT, whereby CoolTech would issue common stock warrants under the following conditions:
|
|
|
|
Number of
|
|
Vesting Condition
|
|
Category
|
|
Warrants
|
|
Fully vest upon UPT generating $1 million of revenue
|
|
Performance
|
|
|
350,000
|
|
45,945 warrants for every $3 million of revenue generated by UPT up to $100 million
|
|
Performance
|
|
|
1,530,000
|
|
60,000 warrants for every three months of completed service managing UPT
|
|
Service
|
|
|
720,000
|
|
|
|
|
|
|
2,600,000
|
|
The common stock warrants have a three year life and an exercise price of $1.00 per share. The grant date fair value was $2,586,000. On June 30, 2017, the agreement expired. None of the performance conditions were met prior to expiration, so no expense will be recognized and no common stock warrants will vest under the performance conditions. During the year ended December 21, 2017, 120,000 of the common stock warrants under the service condition vested with the passage of time and the Company recognized expense of $6,118. There is no remaining service award expense to recognize.
Nonemployee common stock
Other
During the years ended December 31, 2018 and 2017, Cool Technologies issued or accrued an additional 2,600,000 and 4,651,525 shares of common stock in exchange for services, with a fair value of $130,000 and $364,530, respectively.
Nonemployee common stock warrants -- Fully-vested upon issuance
Cool Technologies may issue fully-vested common stock warrants with a maximum contractual term of 5 years to non-employees in return for services or to satisfy liabilities, such as accrued interest. The following summarizes the activity for common stock warrants that were fully-vested upon issuance:
|
|
Number of Warrants
|
|
|
Weighted-average Exercise Price
|
|
|
Weighted-average Remaining Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2016
|
|
|
10,866,071
|
|
|
$
|
0.49
|
|
|
|
|
|
|
|
Granted
|
|
|
5,550,000
|
|
|
|
0.08
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(3,470,235
|
)
|
|
|
0.59
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
12,945,836
|
|
|
|
0.29
|
|
|
|
2.3
|
|
|
$
|
46,000
|
|
Exercisable, December 31, 2017
|
|
|
12,945,836
|
|
|
|
0.29
|
|
|
|
2.3
|
|
|
$
|
46,000
|
|
Granted
|
|
|
500,000
|
|
|
|
0.05
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
13,445,836
|
|
|
|
0.27
|
|
|
|
1.4
|
|
|
$
|
78,000
|
|
Exercisable, December 31, 2018
|
|
|
13,445,836
|
|
|
$
|
0.27
|
|
|
|
1.4
|
|
|
$
|
78,000
|
|
The following summarizes the Black-Scholes assumptions used to estimate the fair value of fully-vested common stock warrants:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Volatility
|
|
|
143
|
%
|
|
144-155
|
%
|
Risk-free interest rate
|
|
|
2.6
|
%
|
|
1.2--2.2
|
%
|
Expected life (years)
|
|
|
5.0
|
|
|
2.4 -- 5.0
|
|
Dividend yield
|
|
|
--
|
|
|
|
--
|
|
No fully-vested common stock warrants were exercised in 2018 and 2017.
Nonemployee common stock warrants -- Service and performance conditions
The following summarizes the terms for warrants the Company granted that are subject to performance and service conditions.
Summary
The following summarizes the activity for warrants that have performance and service conditions. There were no grants in 2018.
|
|
Number of Warrants
|
|
|
Weighted-average Exercise Price
|
|
|
Weighted-average Remaining Life (Years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding, December 31, 2016
|
|
|
3,400,000
|
|
|
$
|
0.84
|
|
|
|
|
|
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(120,000
|
)
|
|
|
1.00
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
3,280,000
|
|
|
|
0.83
|
|
|
|
0.3
|
|
|
|
|
Exercisable, December 31, 2017
|
|
|
1,280,000
|
|
|
|
0.56
|
|
|
|
0.7
|
|
|
|
|
Granted
|
|
|
--
|
|
|
|
--
|
|
|
|
|
|
|
|
|
Forfeited or expired
|
|
|
(2,120,000
|
)
|
|
|
1.00
|
|
|
|
0.0
|
|
|
|
|
Outstanding, December 31, 2018
|
|
|
1,160,000
|
|
|
|
0.52
|
|
|
|
0.4
|
|
|
|
|
Exercisable, December 31, 2018
|
|
|
1,160,000
|
|
|
$
|
0.52
|
|
|
|
0.4
|
|
|
$
|
--
|
|
The following summarizes of the status of the Company’s non-vested common stock warrants with performance and service conditions as of December 31, 2018, and changes during the year then ended:
|
|
Number of
|
|
|
Weighted-average Grant Date
|
|
|
|
Warrants
|
|
|
Fair Value
|
|
Non vested, December 31, 2016
|
|
|
2,000,000
|
|
|
$
|
0.99
|
|
Vested
|
|
|
(120,000
|
)
|
|
|
0.99
|
|
Non vested, December 31, 2017
|
|
|
1,880,000
|
|
|
|
0.99
|
|
Vested
|
|
|
--
|
|
|
|
--
|
|
Forfeited
|
|
|
(1,880,000
|
)
|
|
|
0.99
|
|
Non vested, December 31, 2018
|
|
|
--
|
|
|
$
|
--
|
|
The following summarizes the Black-Scholes assumptions used to estimate the fair value of warrants with performance and service conditions:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Volatility
|
|
|
--
|
|
|
141--144
|
%
|
Risk-free interest rate
|
|
|
--
|
|
|
1.5--1.6
|
%
|
Expected life (years)
|
|
|
|
|
|
|
3.0
|
|
Dividend yield
|
|
|
--
|
|
|
|
--
|
|
Legal settlement - Replacement warrants
Under the First Amendment to Settlement Agreement (the "Amendment") with Spirit Bear, Cool Technologies agreed to issue replacement warrants for certain previously-issued warrants. The 7,000,000 previously-issued warrants were issued in 2012, had exercise prices ranging from $0.35 to $0.75 per warrant, and expiration dates from April 2015 to April 2017. All of the replacement warrants have an exercise price of $0.25, while 6,000,000 expired in January 2017 and 1,000,000 expired in December 2015.
Under the terms of the February 2016 Waiver of Performance and Second Amendment to Settlement Agreement with Spirit Bear, the Company agreed to issued replacement warrants for previously amended and replaced warrants. Six million of the previously amended and replaced warrants owned by Spirit Bear and by Leonora Lorenzo had their expiration dates extended from January 29, 2017, until January 29, 2020, and had their exercise price reduced from $0.25 to $0.10 per share.
In addition, Spirit Bear consented to the withdrawal of a Registration Statement on Form S-1 that was pending before the Securities Exchange Commission (SEC). The proposed registration statement covered the common shares underlying the preferred shares owned by Spirit Bear and the common shares underlying the warrants owned by Spirit Bear and Leonora Lorenzo.
When a replacement equity instrument is issued, expense is recorded if the fair value of the new instruments is greater than the fair value of the original instruments. The Company recorded expense of $423,973 associated with the replacement warrants. The following summarizes the Black-Scholes assumptions used to estimate the fair value of the previously-issued warrants and the replacement warrants:
|
|
Previously-issued
|
|
|
Replacement
|
|
Volatility
|
|
|
206
|
%
|
|
|
151
|
%
|
Risk-free interest rate
|
|
|
0.5
|
%
|
|
|
1.3
|
%
|
Expected life (years)
|
|
|
0.2
|
|
|
|
3.2
|
|
Dividend yield
|
|
|
--
|
|
|
|
--
|
|
Employee stock options - Fully-vested upon grant
Cool Technologies granted stock options to certain members of management in 2014 that were fully-vested at the date of grant. There were no grants in 2017 or 2018. In 2016, one member resigned and released the Company from all incentive compensation it owed to him including stock options. The following is a summary of fully-vested stock option activity with the resigning member’s stock options removed for 2016:
|
|
Number of
Shares
|
|
|
Weighted-average Exercise Price per Share
|
|
|
Weighted-average Remaining Contractual
Term
|
|
|
Aggregate
Intrinsic Value
|
|
Outstanding, December 31, 2016
|
|
|
4,000,000
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
Outstanding, December 31, 2017
|
|
|
4,000,000
|
|
|
|
2.00
|
|
|
|
--
|
|
|
$
|
--
|
|
Exercisable, December 31, 2017
|
|
|
4,000,000
|
|
|
|
2.00
|
|
|
|
--
|
|
|
|
--
|
|
Outstanding, December 31, 2018
|
|
|
4,000,000
|
|
|
|
2.00
|
|
|
|
--
|
|
|
|
--
|
|
Exercisable, December 31, 2018
|
|
|
4,000,000
|
|
|
$
|
2.00
|
|
|
|
--
|
|
|
$
|
--
|
|
Note 9 - Income Taxes
The components of the Company’s deferred tax asset are as follows:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net operating loss carryforwards
|
|
$
|
6,836,322
|
|
|
$
|
6,140,045
|
|
Equity-based instruments
|
|
|
6,465,537
|
|
|
|
6,458,977
|
|
Accrued liabilities
|
|
|
112,795
|
|
|
|
133,105
|
|
Deferred Revenue
|
|
|
96,311
|
|
|
|
96,311
|
|
Pass-through losses
|
|
|
92,634
|
|
|
|
78,682
|
|
Valuation allowance
|
|
|
(13,603,599
|
)
|
|
|
(12,907,120
|
)
|
Deferred tax asset
|
|
$
|
--
|
|
|
$
|
--
|
|
Effective January 1, 2018, the Federal corporate income tax rate has been decreased from 34% to 21%. The effect of this change on deferred taxes and the valuation allowance at December 31, 2017 was approximately $6.5 million. The NOLs that have been generated 12/31/2017 and prior are going to be 100% allowable against future income, provided that they do not expire. NOLs generated 1/1/2018 and forward will be subject to the 80% limitation.
A reconciliation of income taxes computed at the statutory rate to the income tax amount recorded is as follows:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Income tax benefit at statutory rate
|
|
$
|
(970,386
|
)
|
|
$
|
(1,724,214
|
)
|
State income tax, net of Federal benefit
|
|
|
(200,777
|
)
|
|
|
(184,085
|
)
|
Tax Jobs and Cuts Act
|
|
|
--
|
|
|
|
6,256,223
|
|
Convertible debt
|
|
|
486,168
|
|
|
|
988,938
|
|
Other adjustments
|
|
|
(11,686
|
)
|
|
|
40,037
|
|
Meals and entertainment
|
|
|
202
|
|
|
|
235
|
|
Increase in valuation allowance
|
|
|
696,479
|
|
|
|
(5,377,133
|
)
|
Income tax benefit
|
|
$
|
--
|
|
|
$
|
--
|
|
Cool Technologies had no gross unrecognized tax benefits that, if recognized, would favorably affect the effective income tax rate in future periods. It has not accrued any interest or penalties associated with income taxes. The Company files income tax returns in the United States federal jurisdiction. With few exceptions, it is no longer subject to U.S. federal, state or non-U.S. income tax examination by tax authorities on tax returns filed before January 31, 2012. No tax returns are currently under examination by any tax authorities.
Note 10 - Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised.
The following table presents a reconciliation of the denominators used in the computation of net loss per share - basic and diluted:
|
|
Year ended December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Net loss available for stockholders
|
|
$
|
(4,618,388
|
)
|
|
$
|
(5,059,326
|
)
|
Weighted average outstanding shares of common stock
|
|
|
191,539,568
|
|
|
|
130,188,614
|
|
Dilutive effect of stock options and warrants
|
|
|
--
|
|
|
|
--
|
|
Common stock and equivalents
|
|
|
191,539,568
|
|
|
|
130,188,614
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - Basic and diluted
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
Outstanding stock options and common stock warrants are considered anti-dilutive because the Company is in a net loss position. The following summarizes equity instruments that may, in the future, have a dilutive effect on earnings per share:
|
|
December 31,
|
|
|
|
2018
|
|
|
2017
|
|
Stock options
|
|
|
4,000,000
|
|
|
|
4,000,000
|
|
Common stock warrants
|
|
|
80,641,440
|
|
|
|
75,404,803
|
|
Common stock issuable
|
|
|
1,144,697
|
|
|
|
9,320,635
|
|
Convertible notes
|
|
|
24,369,057
|
|
|
|
24,359,499
|
|
Convertible preferred stock
|
|
|
3,727,270
|
|
|
|
4,377,270
|
|
Convertible preferred stock issuable
|
|
|
--
|
|
|
|
--
|
|
Total
|
|
|
113,882,464
|
|
|
|
117,462,207
|
|
Total exercisable at December 31
|
|
|
112,737,767
|
|
|
|
108,141,572
|
|
Note 11 - Subsequent Events
The Company has evaluated all the events or transactions that have occurred since December 31, 2018 and determined that the following should be disclosed:
On January 7, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $50,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, it issued cashless warrants to purchase 200,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On January 25, 2019, Spirit Bear, Ltd. converted their remaining 17 shares of Series A preferred stock into 850,000 shares of common stock.
On February 5, 2019, Cool Technologies issued 5,128,000 shares of common stock to Lucas Hoppel upon final conversion of $64,100 on convertible debt of $226,600 and the note was retired
On February 11, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $8,400 in lieu of interest, for a total amount of $131,600 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of CoolTech’s common stock at a 29% discount to the lowest Volume Weighted Average Price (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 22% per annum, require the Company to (i) redeem all or any portion of the note at a premium of 150%.
On February 14, 2019, the Company retired a convertible note with a pre-payment of $93,565 to the holder six months before the maturity date. The note agreement was entered into on August 17, 2018.
On February 26, 2019, CoolTech issued 7,500,000 shares of common stock to Lucas Hoppel upon partial conversion of $93,750 on convertible debt of $396,550.
On March 13, 2019, the Company entered into a convertible note agreement. It received $140,000 with an original issue discount of $7,500 in lieu of interest, for a total amount of $131,600 due on February 11, 2020. After 180 days, at the holder’s option, a portion or all of the unpaid principal and interest may be converted into shares of common stock at a 29% discount to the lowest Volume Weighted Average Price (VWAP) during the 10 trading days preceding the conversion date. In the event of default, the interest rate will be 18/% per annum, require the Company to (i) pay the product of the then outstanding principal amount, plus accrued interest and default interest, divided by the conversion price multiplied by the highest price at which the common stock traded at any time between the issuance date and the date of the event of default.
On March 18, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.
On March 19, 2019, the Company entered into a Promissory Note Agreement with an accredited investor. It received $250,000 in financing and promised to pay the principal amount together with simple interest of 15% per annum on or before the one year anniversary. Furthermore, the Company committed to pay the principal amount and accrued interest within 30 days of the receipt of funds from debt or surety bond financing, In exchange, CoolTech issued cashless warrants to purchase 2,000,000 shares of common stock at an exercise price of $0.05. The warrants expire after five years.